Reverse Mortgage News

A Reverse Mortgage Requires Sound Advice

March 2, 2008

By Eileen Ambrose, Baltimore Sun

Foreclosures are up, and it looks like they won't be coming down anytime soon.

Troubled homeowners have a few options to stave off foreclosure, and Congress is looking at creating others. But older homeowners, age 62 and up, for years have had a tool that's sometimes overlooked: a reverse mortgage.

This allows you to take out a loan against your home to pay off your existing mortgage and remain in the house as long as you want. You don't have to repay the reverse mortgage until you move out or die. At that time, the house is sold and the lender repaid.

Reverse mortgages can be an expensive form of borrowing, and you must have some equity built up in the house to get one. But for older, cash-strapped homeowners headed toward foreclosure, the reverse mortgage can be the answer.

"It's one of the best uses of reverse mortgages," says Donald Redfoot, strategic policy adviser for AARP Public Policy Institute.

Lucy Hull of Overland Park, Kan., says a reverse mortgage saved the house she has lived in for 30 years.

Hull, 68, refinanced last year to get money to remodel her house. She went from a fixed-rate to an adjustable-rate mortgage. It wasn't long before the widow, living on Social Security and a pension, fell behind on mortgage payments. Her lender told her it planned to foreclose.

That's when Hull saw a TV commercial on reverse mortgages. She called.

The amount you can borrow with a reverse mortgage depends on your age and the house's value. The proceeds of the reverse mortgage go first toward paying off any existing mortgage, and what's left is paid to you.

Hull's house appraised at $122,000, and she owed nearly $74,000 on it, says Eric Bachman, chief executive of Golden Gateway Finance, a reverse mortgage broker that helped Hull get her loan. The largest reverse mortgage loan the broker could find for her was about $71,000 - or $3,000 shy of what she owed on the existing mortgage debt.

Faced with possibly having to spend thousands more than that to foreclose and put the home up for sale, Hull's lender agreed to eat the shortfall, Bachman says. Other lenders might not be so forgiving, of course. But now Hull no longer has to worry about monthly mortgage payments.

"It gave me peace of mind," she says. "I plan on staying here until I die."

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